Alright guys, I need to verify this more. I was in a meeting this morning and started recording some video in Onenote on my surface pro 128. It sounded horrible. I then tried on a co-workers 128. Same horrible sound. I tried the camera app and recorded some video on both pro's. Same thing. We've bought our pros at two different times so I know it's not the batch. So then I decided to try on my RT. Onenote student version doesn't seem to let me record sound but I tried the camera app. Sounded perfect.

Did MS overlook this issue and never test? They couldn't have thought this sound would be acceptable. Can you guys test yours?

It's the settings in windows 8 for "Microphone Boost", turn that down to 0.0dB and you should get proper audio from the microphone.
Goto Desktop -> Swipe from right -> Settings -> Control Panel -> Sound -> Recording Tab -> Select the Microphone that is default device (the other should say unplugged and is the 3.5mm jack), -> properties ->levels tab.
Hope that helps

I ran across this same issue when setting up my Surface Pro for video conferencing apps. Default mic input had mic boost set to max, which generated lots of input noise. After reducing it to 0.0 DB, and then adjusting the mic level, people are reporting that mic quality for VC almost as good as my Sennheiser headset - very impressive for a built-in boundary mic. I'm not sure that an app (looking at you, Skype... with your auto-adjusting gain setting by default) didn't muck with the settings before I started testing audio, so it may not be set that high by default.
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